tv Worldwide Exchange CNBC January 14, 2015 4:00am-6:01am EST
welcome to worldwide exchange. i'm wilfred frost. >> thank you for joining us. here are your headlines from around the world. >> european markets reverse losses after they give the green light to the own program moving another potential obstacle to full grown quantity tif easing. >> he explains why he is
avoiding the energy space. >> it's definitely a time to hook energy. any business with the price of your only product goes down by 55% in six months it's going to cause it but probably not for us. >> the economy is facing a $45 billion hit if oil prices average $50 adding that it's likely moscow will be downgraded to junk status. >> you're watching worldwide exchange. bringing you business news from around the globe. italy in focus with italian inflation data coming out. coming in at 0.0% for the month of december but it did come into negative territory year over year so a sign of deflation given the fact that we did get euro zone inflation data last
week that did show euro zone inflation dipping into negative territory. that's the first time since the financial crisis in 2009. a lot of focus on the low inflation. will he in fact be now pushed to unveil full blown quantitative easing. the conversation has changed from will he unveil further easing measures to when and how much. >> absolutely. people continue to focus on how exactly it might be in force if and when it comes whether it's based on rating and the size of central bank balance sheets. that's a debate we'll continue having. let's get a quick comment from the chief european columnist. let's talk about the french number that came out. the french number is better than expected but it just confirms where we are. >> the key thing is we got the final break down. we'll go into the data and see
what is in overall deflation. if that's considered rising then that will put more pressure. >> there's of course talk about the president stepping down. how much of a concern is that to you given that the prime minister rnezi doesn't need political uncertainty. he needs to focus on reform. >> the key thing was mario saying he wouldn't take the job. he would basically step down from the ecb and move over and he made it quite clear he's not going to do that so that's good news for markets. that's one of the things he was highlighting earlier this morning. italy needs reforms and so forth. i'm sure overtime it will get it. >> more in just a second but first let's get you a market update update. >> now european markets have actually bucked the trend so far this week having gains in the
last couple of days despite the sell off we've seen on commodity prices. that wasn't the case today as markets open. particularly the copper price weighing on sentiments. the stock 600 was down as much as 1.6%. it's allied to be around session highs down only 1% after we got that decision saying that omt would be illegal. it would be within the provisions of european i don't know union law paving the way for mario to act at the next central bank meeting. let's have a look at the individual european markets quickly. it's quite a broad based sell off across all of the main continental markets but continental europe is out weighing the ftse 100. but let's move on from the countries to the sectors because it tells a fuller story for us. basic resources down 5.7%
getting absolutely hit by this continued route in commodity prices and i said it's moved on today to be focused into copper in particular. out performer just below flat. also near the bottom but only down 2% relative to the near 6% decline in basic resources. why as i said commodity prices? let's have a look at those. in particular we have wti and brent continue both around 45. interesting convergence in the two prices. both off 1.5% today. gold managing to stay around the 1230 level. 1230 was a point it has struggled to got past. copper of course down 6.7%. that has caused a big sell off in the miners focused in the ftse 100. you'll see how those stocks are moving. down 14% anglos down and down
10.6%. let's also focus down 6.2%. not really because of the sell off of course in copper prices. that's because it has said it expects a $300 million impairment charge on some of its assets due to the weak crude prices and expects to reduce it's spending by $600 million. that's about 40% on planned projects this year. another suffer from the fallen oil prices. moving on bill ackman discussed the overall benefits of low oil prices but explained why his firm was avoiding commodities. >> we're a concentrated investor. we have ten investment. large investment is almost 30% of the capital of the firm. when you invest with that concentration you want to avoid industry where is the value can be effected dramatically by factors you have not control. we have done no commodity
investment since the beginning of the firm. energy prices coming down is very positive. much businesses are gdp correlated. it's a nice positive so it's an interesting time to look at energy because any business where the price of your only product goes down by 55% in six months it's going to cause a lot of disarray but it's probably not for us. >> now let's look at bonds. a 10 year auction yesterday in the u.s. wasn't in fact that well covered but yields stay below 1.9%. in the last half an hour or so we've seen a little bit of bond buying following that ecj ruling. we're around 0.46% in germany and fields in italy at 1.76%. let's have a quick look as well because the aussie dollar is hit
by the fall in prices. now the dollar had rahal will illied a little bit. it's fallen further today against the yen. the yen being seen as a safe haven trade even against the u.s. dollar in these moments of high commodity volatility. it's up 1% against the u.s. dollar today. back at 116. of course that 121 that we hit in the middle of december seeming a long way away at the moment. this is a look at the ruble. that follows the economy minister saying that a further downgrade in it's sovereign rating to junk is likely and saying that budget cuts are coming for the russian economy. 65.75. let's get an update on equity markets in asia. sri is standing by in singapore as ever. >> good morning, that you were referring to in the broader commodities complex, that started in oil and it's now effecting copper as you
mentioned it's really hitting some of the commodity sencentric markets. australia is a case and point at indonesia. similar story there as well. losses offer more than 1%. remember that's the miners that suffered. they were down by 2.5%. you were talking about the currency, the stronger yen weighing on the nikkei. we also have a record budget approved by the japanese parliament but there's skepticism as to whether that will reinvigorate the japanese economy. bucking the trend up by more than 1%. 1.2% at the close and the world bank projecting that the philippine economy is going to grow at 6.5% over the next two years. that will make it the fastest growing economy. also helps that there is very limited resources exposure on the philippine main board plus there's a two day holiday around
the corner in the philippines and the pope is visiting. what's there not to like in the philippine market. the exception rather than the rule today. otherwise pretty grim in asia. >> 6.5% growth. that will be something to watch. >> 70% consumption. great demographics and net lender of u.s. dollars to the economy. great story. >> thank you for keeping us up to date. back to europe a victory for the european central bank as the european court of justice advisors says the ecb's omt program is legal and necessary. the bond buying scheme was legitimate provided there was no direct involvement in state aid. so more on this story. what does this mean going forward ahead of the highly anticipated january 22nd meet something she's live with us. >> of course the big question is about that european court of
justice ruling does mean for a potential qe program. there was a lot of speculation that if the court was to say that it's not possible to buy an unlimited amount of bonds that would curtail a potential qe program even before it even started so now that's clear what the ecj is saying essentially is the european central bank is allowed to buy sovereign debt on the secondary market but of course it needs to be cautious when doing so and it needs to explain itself why it's doing it also to the general public. that is the main disclaimer here from the european court of justice referring to the omt they're also saying it's clearly legal. it's proportionate and it was needed. at least the announcement was needed and if it ever has to be activated the ecb must have
involvement in program and explain why it's doing. so it's a clear victory probably for the european central bank. as we said earlier it's a legal opinion only for now but it's a legal opinion which has a huge weight for the final wording after european court of justice which we will weigh in three to six months time. with that back to you. >> thank you so much. let's get some market perspective from david owen. chief european economists at jeffreys. do you see this as a victory for the ecb? top judges in europe saying the own program is legal and necessary. >> it's obviously helpful for the ecb and is what they announced back in 2012 but let's be clear. in terms of what the ecb is going to do or not do on the 22nd of january this decision had little baring. at the end of the day, full blown qe it's very different from what the omt was set up to
achieve. we're just looking at certain sovereigns with issues. so this is very different in a sense. the ecb would have always worked around what the eu have done. so it's helpful. it also removes one actual risk which some people were speculating that on the 22nd they would announce full blown qe and then say we need to save legal judgment on this. it's more difficult for germany to throw spatter into the works but at the end of the day qe is coming. it's just a question of when. >> it's not just a question of when but surely a question of how much and how exactly it's did deployed. >> that's right. the easiest way is a couple of paid in shares itself and the number that everyone is anchoring around which i think is a sensible number to work with is 500 billion euro. pretty much the same sort of figures the bank of england
kicks off in 2009. also they will not be buying largely from banks. they'll be buying down the curve. if you want to create money in the system you target nonbanks you're lifting bonds from secondary markets. it will be down the curve. what we don't know is whether they'll come out with an actual figure or whether we'll find out overtime. >> but is that also not precisely the problem. if they're not buying it from banks how will it spur banks on to lending because it's not going to change the desire to lend because there's no demand on the other side anyway. >> let's be clear, the hope that it spurs bank lend as good low. they've done an awful lot of work on this highlighting the quan tif easing in the u.k. but the important thing is to print money. if you buy a bond from a bank what you're doing is changing the competition in the banking sector's balance sheet. you have more hope of driving
down the exchange rate. >> but the exchange rate is already moving down. it's trading at a 9.5 year low against the u.s. dollar. >> it's down about 5%. it's trade wager which matters and the euro zone as a block is like the uk exchange rate is a pourerful figure. they need the euro down 20%. so it's got to go down further. >> let's touch on the u.k. as well because both european union and u.k. are facing these lower inflation prints except whether that's a good thing or not is quite different in term of yesterday we're seeing most of the u.k. press things. so why is it that difference of opinion? >> i think really when they raise rates it hasn't actually changed. we saw there was going to be a rate rise later this year. probably november. could even come as early as august. the fact that you have inflation of .5 going low still actually ruling comes make it more likely
on a two to three year view. so if you'll signal the mpc, are you going to have a rate rise this year? in fact yes. that's the way to view it. when inflation was above target was he raising rates? no more monetary easing. actually the u.k. was good news. >> david thank you very much for joining us. chief european economist at squef ri jeffreys. >> coming up on worldwide exchange we're covering a lot of data. the countdown is underway for jp morgan's results. we break down what investors should watch for with hours to go before that release. >> and as more and more executives work on the move we speak to one company capitalizing on the push into cloud. that's coming up. plus hollywood takes another crack at the financial crisis. stay tuned for the details on the latest novel that is hitting the big screen.
paris last week. they may print up to 3 million print copies. the front cover features the prophet prophet holding a sign saying all is forgiven. benjamin net kwaanyahu was in attendance. >> angela merkel marched among thousands yesterday in honor of the paris victims. the vigil came a day after 25,000 antiislam demonstrators marched in eastern germany. the chancellor says germany will use all means to fight intolerance. >> the italian president is expected to formally design by delivering letters to the house
and senate. the 89-year-old's residencegnation will kick off a tricky process to finding a successor. give us an update on what's ahead. is it as tricky as the process faced in greece? >> no it isn't but it's a great point that you make wilfred in terms of the contrast between the two. what's going to happen now we're expecting to see a formal resignation from the president around 12:00 local time and then there's a 14 day process where the electoral college comes together. they vote on the next president. there are three votes in similar to what we saw in greece where two-thirds majority is needed. in greece they do snap elections. here in italy the voting process continues. so good you don't get to see the political instability as far as greece is concerned but it can be a labored process and that drags on when reforms are essential in this country and
when it pushes back into march time it impacts negotiations between brussels and italys in their reforms. what i heard from talking to people this morning and they're expecting to see around four votes. once we go past those initial three it goes down to a simple majority and the hope here is that renzi can get his choice of candidates selected. who is his choice? there's no one announced so far. we have the finance minister's name. no one here is talking about the prospect of mario coming back to italy to be president of this country but the expectation is he'll go for somebody less high profile. perhaps the cultural minister is one name also being thrown into the ring right now. so plenty of uncertainty out there over who the candidate is going to be. he needs someone that is bipartisan, that can be voted for by both sides of the political spectrum here.
he needs someone that will support his reforms but also someone in sympathy with him if he does decide to call early elections if and when he gets his electoral and constitutional reform through. first stop of course is the formal resignation expected at 12:00 cet. >> thank you. david, he came out this morning to say he wasn't interested presumably for europeans out side of italy that's a good thing. >> that was the market chatter that he might announce qe and then announce he was moving over to italy and markets will face this huge uncertainty about what happens next. who is going to take over the presidency of the ecb. he's ruled that out so that's good news. >> going forward looking five to ten years out do you think that's a role that he would consider? some leadership role in italy?
>> again people suggest something he would want. i don't know but maybe it's a nice thing to do once you've done everything else. >> exactly. we want to get your take david also on what's happening in the commodity world because commodity prices coming under fresh pressure after the world bank cut it's global growth forecast. the washington based institution said euro zone stagnation and market volatility were behind the move and global economy is too reliant on u.s. strength. earlier on cnbc the author gave her outlook for the u.s. economy. >> we also expect the u.s. recovery to be gaining momentum. on the order and three and a quarter per cent and seems to be a lot of internal momentum even if the rest of the world is fairly weak but even once the first interest rate hike comes we expect interest rates to be raised very very gradually so for most of the year and into 2016 costs will remain low for most countries.
>> we're not just seeing a move in oil prices. gas prices are also moving to the down side. david i want to get your thoughts on this because short-term positive for the consumer they have more income they can allocate toward retail or other areas. do you think we'll actually see that feed through to the consumer and if so when. >> the economists stop responses. this should make organizations more realistic. organizations like the imf and world bank have always been forced to continue revising down their gdp forecast globals. world trade is slow to pick up. going into last year world trade started accelerating. looking at this data going into the first quarter, q 2 of this year we may see world bank actually revising up their gdp forecast in the next six months
or year or so. >> let's talk about what that means for europe's economy. given that it is facing deflation fears does that make it a bad thing for the european economy where as for the u.k. economy it's positive. >> in portugal it's a negative cpi good or bad for you? they say it's good. given a boost it makes more likely that portugal actually recovers going forward since 2016. so it is also a net positive for gdp. exchange rate is more palpable than the oil price but should be raising expectations of where europe is going to be over the next 12 months or so. >> how much lower do you see oil prices falling from here? when do we see the turn around? >> i have no idea. you know these things -- at the end of the day when the oil price moves maybe it stays low for an extended period.
that again would be welcome news for europe. i'm actually now more positive about europe and the economy than six months ago. >> some of the leading oil traders are said to be booking these huge tanks to store barrels of oil at sea hoping that once we see a rebound of oil prices that they can then sell the oil they're storing at a premium. >> yeah. >> interesting way people are reacting to the price of oil. david owen thank you for your time. >> also don't forget on thursday cnbc speaks exclusively to christine lagarde. >> jp morgan kicking off bank opens in the u.s. could that be a sign of things to come? we discuss after this break.
look at energy because of any business where the price of your only product goes down by 55% in six months that's going to cause a lot of disarray but it's probably not for us. >> russia's finance minister warns the economy is facing a $45 billion hit if oil prices average $50 saying it's likely moscow will be downgraded to junk status. let's get a check on the european markets and how they're trading after what was a solid session for european equities. interesting enough despite the sell off on wall street stocks did end seeing a gain of better than 1%. we're actually down across the board. the big loser or the under underperformer is the ftse 100 down 1.5%. right now the german markets
down .69. the cac down .9% we'll see it. the speculation continues over what and when mario will unveil the bond buying scheme. >> that ecj ruling did allow some of the losses to be recovered in european markets but still in the red and the reason the ftse 100 is so significantly in the red is the commodities market that you can see. down about a percent each but also worth pointing out copper down 6.3% today and that's on the big miners in the ftse 100. anglo american down .6%. >> just take a look at the dow. the wild swings we have been seeing on this wall street. this is a chart of the dow over the past 8 trading sessions and the dow has seen a 2,500 point
move in fewer han 8 trading sessions. so volatility back. >> it's hugely surprising but every market in 2015 will see a lot more volatility than 2014. >> especially as rates normalize. >> absolutely but the surprising thing on that is seeing the correlations is that it's seeing commodities sell off too. it started to settle a little bit and we started to think lower oil prices are better for the economy and now with volatility picking up equity investors can't seem to see through it. >> essentially because at some point analyst versus to call a bottom but no one is calling a bottom just yet. the oil story continues to dominate investor discussion. earlier on cnbc bill akman suggested there could be an upside to volatility. >> for a long-term investor
volatility in short-term is a big positive. >> do you expect it to continue? >> i'm not very good at predicting. i think there will be uncertainty in the future. beyond that i can't tell you what the stock market is going to do. >> burberry rose 8% but they warned that prodemocracy protests weighed on sales and could hit full year margins. it's down 1.5% today. still up 3.5% over the last month. >> from retail to financials u.s. earning season is in full gear with six major banks set to post their 4th quarter results this week. jp morgan leads the way ahead of the market open. >> bank stocks in 2015 have been function fluctuating with the price of oil. the rational is more money in consumers pockets means they can spend it elsewhere and use it to
pay off some of their bills but this week bank stocks could get rocked when earnings season gets underway and the boost that banks may have been getting from consumer spending will have to overshadow a lot of ills elsewhere in their businesses. first of all, trading. normally volatile markets mean more trades being made. executives late last year said while that's the case more of those trades these days are electronic which are cheaper to execute and bring less money in. so trading revenues are expected to be flat to down at bank of america and citi group. banks are not out of the woods on legal issues just yet. citi said a $3.5 billion charge will wipe out the majority of profits for the 4th quarter. much of that charge will cover on going investigations into alleged manipulations of kurn sis and benchmarks rates for other banks too. you could see forth coming charges there as well. finally capital. the federal reserve in december
released strict new rules on how much extra cushion banks need to safe guard the risky assets. they shown a harsh light on jpmorgan which needs upwards of $20 billion more in capital to meet those rules. the cfo told investors that could put short-term pressure on the bank's return of equity. wall street is expecting all big banks to see revenues fall for the full year compared to 2013. that rally that we saw in 2013 and for a couple of stocks in 2014 could see a halt unless we get a surprise to the upside. back to you. >> now before we discuss further on that topic just going to bring you a couple of flashes coming out of brazil particularly regarding the corruption inquiry where the federal police arrested another director. he has been arrested within that corruption investigation.
>> we'll keep you up to date on that story but for now let's talk more about financials. joining us now guy foster group head of research at wealth management. a pleasure to have you in studio. >> nice to be here. >> six major banks are reporting on wall street this week. i want to start by asking you about the impact of energy and the reason i ask that is there are a lot of smaller oil companies and gas companies that have taken out loans with a variety of banks on wall street. are there any that have higher exposure to the energy trade? >> i don't think that the exposure is that extensive really throughout the banks because what they do a lot of is syndication of loans and may be involved in the origination and that's something that's going to hit revenues probably during the coming year. the net exposure is not something that concerns us a great deal. >> you're not worried about smaller companies that have a heavy amount of debt on their books that might not be able to pay back if the trade continues
to fall? >> a lot of those have been secure or sindicated. it's a big issue in terms of high yield exposure and will be something that weighs on banks in the coming year but not in terms of losses suffered. >> i'm going to break in and do some flashes on where the euro is trading at. it's at 11736. it's fallen below the levels at which it was introduced to record all time low for the euro against the dollar. let's move the discussion back toward europe. we did have the ruling from the ecj earlier. does that open the door for quantitative easing. >> the omt was a program that was really focused on banks that were on -- sorry, sovereigns in
financial difficulty so it was on the surface much more explicitly about funding governments rather than about monetary policy. so you've always had that argument that this decision doesn't really reflect any opinion on qe. >> politically, does it weaken the germans arguments to push back against quantitative easing happening? >> yeah i mean i think it does and it indicates that if -- that toward the european court of justice there's no reason to believe they're necessarily going to come back with the answer that they might be wanting. >> let's just bring it back to the euro which we have on screen right now. it's at 1 1734.
basically trading below the threshold it was launched at in 1999. does this move surprise you given that of course commentary has already pushed the euro down but at what level will it be seen as bad news for european markets? >> i don't think a weaker euro is going to be seen as bad news. >> even if it trades in parody with the dollar at one point. >> no trading desks are very focused on this idea. deflation is bad at the moment. you know that's the story running at the moment. deflation is bad. inflation or less deflation would be good. so anything that helps you reach that conclusion is going to be perceived as being positive and that's what a weaker euro is going to do. >> earnings of course are also supposed to see a boost this year. morgan stanley forecasting a 10%
rise in profitability. much of that attributed to a weaker euro. >> it will give you translation gains. no question about that. but what is more than straightforward is that typically it tends to underappreciate the impact of a weaker currency so we always see that. we always go into an earnings season expecting translation gains and they tend to be net surprises when they actually come through if it's driven by a weaker currency and vice versa. >> all right guy foster. we'll leave it there. group head of research. thank you for your time. >> now the japanese government will propose a record budget of $80 billion the next year. let's join for the story live from tokyo. >> yes t total budget for the year added up to more than 96
trillion yen. the good news is that the governments tax revenue is likely to rise 9% more than 54 trillion yen hitting a 24 year high. major factors are increasing corporate tax payments thanks to the weaker yen boosting exporters profits and the consumption tax hike last april. the government will be able to cut back on issuing new bonds by 11% from the previous year lowering it's dependence on debt. however spending is also on the rise with the total being dulled out on social security costs such as pensions and medical treatment to deal with the rapidly greying population. the defense budget climbed 2% with china's growing assertiveness in mind. pressure to spend on public works was also strong due to upcoming nationwide local elections in april and the budget grew from the previous year. prime minister abe said the budget was composed with
economic recovery as well as restoring fiscal health in mind and vowed to have it approved by parliament as quickly as possible. that's all from the nikkei back to you. >> thank you very much. >> is the worst over? we're getting a couple of headlines from the prime minister of russia. he says that russia will not cut itself off the world and not create a localized economy. any return from the past and refusal from an active role in the world would be a monsterous mistake and the central bank's policy is correct. we don't plan to eat up foreign exchange reserves. that's in relation to the ruble which has been depreciating for quite some time. still a lot of focus on the out look on the currency. on that note take a look at it now. trading lower versus the dollar. oil prices continue to slide.
the country's finance minister said the drop in crude created a short fall for the economy and it was likely russia's sovereign rating would be downgraded to junk. now earlier the world bank's economist talked about the decision to slash the forecast. >> we already expect the recession on the order of 3% contraction for this year. we expect this to hurt the regional trading partners especially. the central asians eastern europeans, especially the regional trading partners and of course the story is more than oil for russia. >> all right. so further -- it doesn't seem like the worst is over i guess when you look at russia. >> absolutely not. i think oil prices might not decline further but it's all hit very low levels that makes the biggest part of the economy significantly under threat and until we see significant developments in the region and sanctions being relaxed we'll remain under pressure. what's incredible is the way
that vladimir putin's opinion polls stay so high. he's ahead of state and not government. if they're not blames on the west they're blamed on everyone but vladimir putin. >> there's a certain level of fear out there as well. citizens pushing back and revolting against what vladimir putin has to say. >> absolutely but the worst not quite over yet. >> absolutely. now we're going to discuss russia going forward but also want to get your attention on what is happening in the tech world. more executives are making their move to work at home. we speak to one company that is actually cashing in on this trend using the cloud. that's coming up.
welcome back to the show. out of italy the president has re-signed as expected and now they'll have to seek confirmation for the new candidate who is as yet unnamed. we'll be getting out to italy in about 20 minutes time for more on the story. >> he took office in 2006. accepted a second term in 2013 but he suggested or signals his
lack of interest in serving a full seven year term so perhaps this does come to mind with what we were expething but nonetheless news today, italy's president re-signing. now let's move on to elan musk. tesla sells in china fell significantly in the fourth quarter speaking in detroit. musk wouldn't quantify the slide but blamed it on misconceptions about the difficulty of charging electric vehicles. he doesn't expect gas prices to have a impact on they're ability to be competition. >> it's not simply cars that are electric. there's 100 billion cars and new trucks made every year. so what does it matter if someone makes a few hundred thousand additional electric cars? it won't effect us really. >> tesla's long delayed model x will be launched this summer and the smaller model 3 is on track
for 2017. tesla should turn a profit in 2020 when the model 3 is in full production. taking a look at shares and how they are performing down about 5.6%. >> apple, google intel and adobe systems agreed to a new settlement to resolve a class action lawsuit. they limit job mobility and keeping a lid on salaries. a judge rejected a $324 million settlement as too low after one of the plaintiffs objected. let's have a look at the share prices apple is up .5%. google down .5% and intel and adobe down over 1%. >> apple is suing ericsson over patents related to technology used in it's devices. they're demanding royalties for
the lte patents. they say a licensing deal between the companies has expired and no new deal has been decided after two years in talks. >> they were granted a payment for a wearable camera that could directly challenge it. the apple system could be used under water or mounted on bike helmets. >> next week is work from home week and with the advancement in cloud technology it's easier for entrepreneurs to do just that. one company that benefitted from the trend is a cloud based accounting platform that went public in new zealand in 2007 and counts peter teal as an investor. shares are up 870% since the stock debut. the company is planning a ipo sometime this year. let's bring in the managing director of xero u.k. thank you for joining us.
>> good morning. >> help us understand how your company is capitalizing on the work from home trend. >> the world of work has changed hugely. a lot of that enabled by modern technology and ability and the web and previously where you would have had to commute to an office in order to sit next to your technology in order to use it now you can choose to use your technology and access your systems and run your company where from ever you are. so we're seeing a huge shift in behavior. working from home is not a new concept. a lot of businesses are permitting employees to work from home for 20 years and their behavior is transitioning into when people set up businesses they're choosing to do that on their terms. >> you provide accounting services in the cloud so people can do that at home. is it only going to be a success story for xero in small to media sized enterprises because the bigger clients where human
relationships are more needed, does that mean you're focused on smes? >> primarily. our customer focus is small businesses. they make up 98% of all businesses in most economies and including the u.k. it's a huge market. there's 5 million businesses in the u.k. and 4.9 million of them are sme. how do we capitalize and service that audience rather than the larger ones. >> and despite that focus, the likes of fighting back and then starting to offer their own cloud based services must give you cause for concern. >> absolutely not. they partnered with us in this endeavor of theirs. so interesting that there are large accounting and professional services firm like kpmg also recognizing that in this small business enterprise economy that's emerging and with the technology that we have and the growth that we've seen over
the last seven years since we have been going we have over 400,000 businesses globally using our software to run their businesses and i think it's actually -- it's good news that firms as large as kpmg write into small businesses recognizing this opportunity. >> let's talk about demand. it spending has been at a multiyear low. companies not wanting to put as much money toward the tech industry given the downturn right now on the economy here in europe. how is that impacting your business? what are you doing to bring on clients? >> so our business is growing really quickly. we're growing at 80% of revenues. we have doubled our customer numbers for the last six years. we have a degree of immunity. because we're going after such a large number of customers. it's at an all time high so
there's a huge opportunity in terms of growth potential and particularly since the transition to mobile devices and tablets and smartphones where people are looking to use those technologies to help them run their business and our customers keeping on top of their finances and credit control and invoicing and billing. where ever they have to be no longer anchored to some pc in their office somewhere. we don't see the big trends impacting our ability to grow. >> are you still benefitting from being the first mover, the early disrupter in this space? is that why you're still going so fast? there could be threats coming too. >> actually accounting and specific data that we focus on is actually a really hard category to break into. much more difficult and more generic. so we feel reasonably protected in that respect in that we made a huge amount of investment. we spent over $250 million building our business so far
because it's such an undertaking to build a business of this scale focussing in on selling small business software to small businesses. it's a high volume low value moral that we have. and large companies whether that's microsoft or google haven't succeeded so we feel pretty secure in that respect. >> thank you for joining us this morning. much appreciated. managing director at xero u.k. >> hollywood taking another crack at the financial crisis. brat pitt, ryan goseling and christian bale will star. it will target the investors that got rich during the boom. brad pitt will coproduce the movie and the writer codirected anchorman and talladega knights.nights.
which book would you like to see being made into a movie. you can e-mail us and tweet us at cnbc. what's your thoughts. >> the other book is boomerang. i think it might lend it's into a comedy. >> there's about freakanomics and of course break out nations. he called the slow down in emerging markets that many people missed. >> the question is how transferable these serious books are to the big screen because some have been a little questionable. >> too nerdy? we'll discuss more. financials coming up. we'll discuss next on what to expect.
u.s. futures pointing to a lower open after a volatile day on wall street leaves markets in the red but bill ackman telling cnb there could be positive in the swings. >> it increases the opportunity that investment will be available at the wrong price. >> copper becomes the latest commodity to slide. this after the world bank cuts it's global growth forecast warning over too much reliance on u.s. strength. >> the euro falling below the
level it was launched in 1999. this after a european court gives the green light to the omt program. moving another potential obstacle to full blown quantitative easing. >> jp morgan with a big focus on regulator expenses and trade revenue. wells fargo reports with investors eyeing an update on loan growth. >> you're watching worldwide exchange bringing you business news from around the globe. >> and once again it seems to be the oil story that is weighing on equities. yesterday we saw a major reversal on wall street. the s&p 500 ending lower by around 1%. what's interesting is when you talk about oil the economics of supply demand formula that story hasn't changed yet oil prices continue to move to the down side. >> absolutely. that has been effecting u.s. markets all week. monday and tuesday european markets managed to ignore that
fact because of talk of quantitative easing. that hasn't been the case. part of the reason is copper is down 6% today and the ftse 100 is very heavy. >> it's interesting to see how copper responded to that world bank report that's forecasting lower global growth so concerns over there and what that means for broader commodities. a story we'll continue to hit over the next hour. let's take a look at how u.s. futures are trading right now. the s&p 500 indicating a lower open by around 1 point. dow jones down about 5 and nasdaq bucking the trend up about 1 point in premarket trade. let's look at european markets. we have been holding on to gains coming up from negative territory but the ftse 100 still trading in negative territory. a better than 1% gain yesterday is now up about 9 points. today's trade the cac 40 up 4. despite that negative read on inflation but you have to take a
look at the big story. currencies, the euro dollar falling below the level it was launched in 1999 as investors ramp up expectations from the ecb next week. this of course after a european court of justice ruled the ecb's omt program is legal and necessary. now the highly anticipated opinion said the bond buying scheme was legitimate provided there was no direct involvement in state aid. this removing another potential obstacle to full blown quantitative easing. it takes note of the decision and omt is ready and available but just one more time to hit the euro/dollar trade is now trading at 11747, a nine year low. >> that's the big currency story of the day but there's other interesting ones to look at as well. the aussie dollar has suffered today on the news of that copper price fall. it's down .3%.
it's fallen much further against the yen today. against the dollar. that's because the u.s. dollar lost the best part of a percent. it's now 117. it's a long way from the 121 price that we hit in the middle of december and quite bizarrely the yen has been seen as a beneficiary of safe haven trade which is is not the case in december 2014. the euro is at 11748. down .2%. let's look at commodities quickly to summarize the driving forces behind markets so far today that we have been talking about. wti is at 45.7. down .4%. brent down 46.5. gold which found a little bit of resistance around that 1230 level after three or so weeks of gains is off about .15% and copper down 6.7% leading the risk off trades we've seen
significantly so far today. speaking to cnbc earlier, bill ackman, he discussed the overall benefits of lower oil prices but explained why his firm was thus far avoiding commodities. >> we have ten investments. large investment today is almost 30% of the capital of the firm. when you invest with that degree of concentration you want to avoid industries where the value of the business can be effected by values you can't control. we have done no commodity investing since the beginning of the firm. for us energy prices coming down are very positive. most businesses are gdp correlated. if costs of inputs go down it's a nice positive but it's an interesting time to look at energy because of you know any business where the price of your only product goes down by 55% in six months that's going to cause a lot of disarray but i think it's probably not purse. >> and joining us now is simon lang head of u.s. equities.
thank you for joining us today. >> thank you very much. >> let's kick off with energy prices and what it means for u.s. equities. it surprised me the level of correlations we've seen. this should be benefitting the u.s. economy. >> i think it is benefitting the u.s. economy or i think it will benefit the u.s. economy. i think from an earnings standpoint corporate earnings standpoint, just a headline basis the initial news is all negative. we see the price coming down. we can see the implications for companies. we've already seen energy companies slashing their cap ex budgets for next year and you get a general sense that people are nervous ahead of what the implications are for the u.s. economy in that environment. i would say though that when you see the lower commodity price feed into consumer spending that is something you would expect to take a little longer to feed through. so longer term we still think
it's a positive. >> we talk about the energy sector itself, of course the outlook for that sector is not fantastic at the moment. looking through your notes before the show at the margin something that could be positive for the sector you think is the republican congress. >> well yes, there's no question the shift in power and the senate last year or i should say the congress benefits the complex. we have seen it already. the keystone pipeline is now in front having passed both houses so we're starting to see some of the things that haven't gone through start to emerge at the margin. so that will be positive. i think, you know the bigger problem that faces a lot of these energy companies is just cash flow. and leverage level in the sector and that's why you have seen equity prices track the commodity down and between what happens here and over the next
two years remains to be seen. >> the u.s. economy seen as an bright spot. expected to see growth of around 3 to 4% this year. if it's unrealistic to think the economy can continue to accelerate when you're seeing global growth forecasts cut by the world bank? >> clearly we look at the commodity price and fall as a red flag. what could go wrong in the u.s. i don't think we'll see acceleration because of two very strong quarters but if you remember a very bad one last year because of the weather. growth of 2.5 or 3% is something we should expect and that to me is a descent environment for equities and growth. if we look at the commodity markets these are globally driven markets and the pockets of weakness are europe and china. when i look at the u. sflt thes. we have to be most careful that it doesn't find it's way on to the
u.s. shore because as you have seen with the pace of economic releases in the u.s. it looks pretty robust already. good employment we saw very strong small business data yesterday. gdp remains okay. nothing we want to get too worried about but when you see markets move at this pace and this far down it was wave the red flags that as investors you need to look at. >> one factor that could change the story is earnings and earnings season kicking off in earnest in the u.s. today. let's get a run down. jp morgan with a busy few days of bank earnings along with wells fargo, bank of america citi group and black rock on thursday. goldman sachs wrapping up the week reporting results on friday. what do you expect in terms of banks or financials in general this earnings season? >> well, we pride ourselves in our long-term investor horizons so we don't get too weighed down
on a quarterly by quarterly forecast and we're looking at it as a barometer that things are heading in the right direction. we think things are looking better for banks. that removes one of the things that sectors face. similarly we're looking at regulator issues and we think we're -- you're still going to see legal costs emerge but we think we're over the bad ones and also on the regulation side we're not aisha place. investors will start to focus on what companies will come out of that. remember last year they hit very hardly when they failed these processes. not just capital levels but also in compliance procedures at firms that you know i think investors will look at banks who
could perhaps, if someone was to give them a little bit of leeway understanding that you know these regulations are forever moving but banks are in the right position and are consistently improving the processes. >> let's talk about a couple of your other sector picks. you think it has further to run still. >> well i think you need to be very picky and i think you need -- this is another thing we talked about here is the benefit to stop picking in this market. some of the evaluations in this sector are very high. we now need to see the business models start to reflect what the valuations are telling you. otherwise we could actually see disappointment. i think for some of the larger names that are out there, potentially valuation does it. we don't jump on it at all and
that's not our style and we're searching for value with some of the sector i think we're in a wait and see mode and that's how we would be handling it. >> thank you very much for joining us today. simon lang head of u.s. equities. >> let's get you a run down of what to watch this trading day. retail sales at 8:30 a.m. easternful they're expected to slip. but if you exclude gas and autos sales are forecasted to rise. import prizes import prices are expected to drop while business inventories are seen untrade. this avrn wefternoon we get the latest fed beige book. >> coming up next on worldwide exchange, it's official what could a transfer of power mean
world bank cuts it's global outlook and we get a check on u.s. banks when jp morgan kicks off earning season just a couple of hours from now. italian president napolitano formally re-signs. the 89-year-old's resignation will kick off a tricky process to choose a successor. julia is in milan live with more on the story. >> thank you very much wilfred. as you quite rightly said this now kicks off a process of selecting the next president for this country 14 days in which the electoral college will come together and decide who runs the country next. we have three votes that takes place where a two-thirds majority is needed and from that it drops down to a simple majority. unlike greece where after three votes it goes to fresh elections in italy you just keep going. so good in some ways but also
bad because it draws out this process when a country needs to see further reforms enacted here. there's a whole host of candidates being talked about right now. some high profile. but it's actually more likely for my conversations here that we see farlower profile. what the prime minister needs is machine to support his reforms but also someone that will have sympathy with him if he wants to call early elections to threaten that over policy makers if they don't enact the policies that he needs or when he has enacted the crucial electoral and constitutional reforms he can call early elections to try to sure up his party support. it's a secret ballot and he may lose up to a quarter of his own mps that may choose to vote against him. he's going to need somebody that will appeal to both sides of the political spectrum. he said it will take four votes for him to get his prison he chosen and into the head of state position. that's in general agreement with the conversations i'm having
here but for now 14 days until we start to see when and how the vote is going to take place. back to you. >> thank you for that. commodity prices coming under fresh pressure after the world bank cut it's forecast. euro zone stagnation and market volatility were behind the move. earlier on cnbc the author of the report gave her out look for the u.s. economy. >> we also expect the u.s. recovery to be gaining momentum. we expect growth rate of 3.25%. it seems to be a lot of internal momentum even if the rest of the world is fairly weak but even once the first interest rate hike comes we expect interest rates to be raised very very gradually so for most of the year and into 2016 costs will actually remain low for most countries. >> all right. coming up on the show we're going to continue to track the move that we're seeing in the euro but also there's an
apple's system could be used underwater or mounted on bike helmets. >> apple is suing ericsson for patents related to technology used in their devices. they're demanding excessive royalties for the lte patents. a licensing deal between the companies has expired and no new deal has been reached despite two years of talks. taking a look at shares of ericsson they're down half a percent. >> they accuse the companies of conspiring not to poach each other's employees limiting job mobility and keeping a lid on salaries. a judge rejected a $324 million settlement as too low. the case was largely based on e-mails between steve jobs and former google ceo eric schmidt.
adobe down 1.5%. >> corporations must change the way they engage young talent or risk being left behind that's according to the millennial survey timed ahead of the release next week. let's bring in steve. it's a pleasure to have you on. >> nice to be on. >> really interesting story your survey around millennials and i want to understand what do you think is driving this change? what is driving millennials to change the way they look for a job? >> first with the good news millennials continue to be very positive about business and the impact it makes on society as a whole. but i think there is a very strong message for business leaders. i think business leaders need to be just as focused on people and
purpose as they are on products and profits. so meillennials haven't changed that much that they look for a business that exhas a strong sense of purpose and most of them say their company still does have a strong sense of purpose but more challenging is business leaders think they're too focused on short-term targets. rather than just profits and job creation. they should be much more improved as a whole. >> and this is very encouraging. only 28% of millennials say their organization makes full use of their skills. we have all been in jobs at
times when we feel pressured but that's a surprising percentage. >> what also comes out of the survey because you're right about that one but they also say and they also recognize that academically they didn't equip them with skills businesses value most. leadership, and financial disciplines so you could say that colleges prepare students to be employable but not necessarily successful in business. so the interesting question is whose problem is that? because the business schools develop such skills but that's for the few and not the many and graduates shouldn't need to have an mba to be successful in business. >> finally another thing that comes out people in emerging markets wanting to look for smaller companies and their own companies rather than developed markets. >> and also more ambitious and confident about their ability to
succeed in big companies and have the ambition to be the ceo themselves. more work needs to be done to understand that but it may be something to do with business did just get a bit of a battering in the prices. ceos recognizing to restore public trust in business. and i think millennials are still sharing a bit of that confidence and cynicism. >> thank you very much for joining us this morning. much appreciated. >> it's a fascinating discussion to have because there's so much focus on the millennial generation because wall street cares what the teen and audience is buying and which apps they like. it's an important survey and research to be looking at. let's have a little bit of fun here. hollywood is taking another crack at the financial crisis. variety reports brad pitt, ryan
goseling and christian bale will star in the movie chronicling the events leading up to the mess and who got rich during the boom. >> which book would you like to see being made into a film? get in touch with us by e-mail worldwide at cnbc.com. robbie tweeted in and said the rosie project or interns handbook. jason says predator's ball. do join in. i have to say the only other point is whether financial stories or business stories make good hollywood movies. if you think back to some of the films we have seen like the second wall street movie called money never sleeps that was pretty dreadful prediction of the actual events of the financial crisis. >> it's something that impacted every person out there so you would think that movies that detect picture the financial crisis of 2008 or 2009 there
would be more interest but it's all about the story. people will be interested. >> absolutely. well, do get in touch with us with your suggestions of what books you want to see made into films. >> still to come on this show earnings season gets underway. we take a look at the retail sector as it hopes for a boost from falling oil and gas prices. that's coming up next.
10:30 a.m. here in london. 5:30 a.m. in new york. thank you for joining us on worldwide exchange. >> here are your headlines from around the world. >> u.s. features pointing lower after a volatile day on wall street. but activist investor bill ackman telling cnbc there could be opportunity in these swings. >> volatility in the short-term is a big positive. it increases the probability that investors could be available at a smaller price. >> the world bank cuts it's global growth forecast warning over too much reliant on u.s. strength. >> the euro falling below levels not seen since 1999. this after a european court gives a green light to the omt program removing another potential obstacle to full blown qe. >> with j.p. morgan with regulator expenses and trading
revenue. wells fargo with investors eyeing an update on loan growth. >> volatility is back in growth. look at the commodity complex. that's the focus for investors. we're seeing an accelerated slide in oil prices. crude right now trading at 45 67 down about a half a percent in today's trade. brent crude trading at $46.52 down just fractionally in today's trade. gold interestingly enough we did see a little bit of gold buying over the past couple of days. that sent gold shares to a 12 week high but reversing the gains down about $1 in today's trade. copper the world bank cutting
global forecast has lead copper shares to trade lower around 5%. we're seeing losses across the commodity index but let's look at european markets and how they're trading because the focus is on what the european judges said about the ecb's plan for bond buying. right now we reversed the gain. the ftse 100 trading down by 1.3%. cac down 19 points and we're looking at the italian markets up about 40 points despite the negative read on italian inflation but here's what european traders are really watching. it's all about the euro dollar trade. falling below levels. it was launched in 1999 as investors ramp up expectations for qe from the ecb next week. this after they ruled the ecb's omt program is legal and necessary. the highly anticipated opinion says the bond buying scheme is legitimate providing there's no
correct involvement. it basically removes another potential obstacle to full blown quantitative easing. now all eyes on what he will say and unveil at the meeting next thursday. let's look at u.s. futures. it was a wild day on wall street. gave way to dow and rallied nearly 300 point afs the open but lost all of it and more at one point falling nearly 425 points from its session high. the biggest reversal for the dow since march of 2009. we also saw crude trading at a nearly six year low. so a lot of focus on u. s. futures and right now they are pointing to a lower open the dow down just about 48 points. earlier on cnbc activist investor bill ackman suggested there could be an upside to all the volatility. >> for a long-term investor it's a big possible. >> do you expect it to continue?
>> i think there will be uncertainly in the future. but beyond that i can't tell you what the stock market is going to do. >> burberry comparable sales rose 8% beating analyst forecasts but the high end british fashion store had an impact on sales and let's look at burberry trading down half a per percent in london today. >> a lot of focus on the luxury retail space. we'll get your thoughts on whether they're a good trade going into the new year. let's stick with retail investors. december sales out at 8:30 a.m. eastern. retail sales expected to lower but as you exclude gas and autos sales are forecasted to rise. so a lot of interesting details or data we should be getting out over the next couple of hours on retail sales. let's now talk more about the
retail trade with oliver chen. oliver a pleasure to have you on this morning. thank you for joining us. >> thanks. >> before we talk retail sales let's talk about the holiday season. who were the big winners and losers. >> we're excited about macy's and target. we think macy's has a great offering as well as some of the best national brands and online shopping was a big deal this season rising about 18%. at the same time the brick and mortar stores are seeing declining mall traffic so that's an issue. target we like the new ceo. we like the focus on famous product categories and we like the comparisons against last year's data breach. those are some of the bigger ideas. we like that signet corp. and limited brands victoria's secret. we're optimistic about the consumer and gas prices help in terms of wanting to go to the mall and having the gas to get
the traffic to go to the mall as well as well as giving consumers more dollars in their pocket to think about items and spending. >> analysts are saying that household income is expected to increase $1,000 a family because of the drop in gas prices. do you think it will be that much and the question is should we expect the consumer to then spend that money on retail? >> yeah there's puts and takes to the discretionary dollars that the consumer gets. what's important to note is health care costs are rising as well as food and then if you think about apparel there are really no dominant major trends. so there's not as much of a call to action in apparel. we like handbags as well as beauty a little bit more for stability and then these discretionary dollars as we interact with management teams, they'll be some what of a delayed lag in terms of spending and the share gains aren't
clear. we quantity the upside in terms of what could drive numbers into the next year but we're still very selective as it won't benefit retailers equally in our view. >> let's talk about which retailers it would benefit. one would think if people find a benefit from saving an extra few dollars at the pump it would be at the low end of the consumer space but you also think some luxury names are due to benefit. >> we are. we like the global story of tiffany. there's tiffany tea and self-purchasing and i would say target and macy's are more of my mainstream ideas. we're very strongly belief in the high end consumer so we continue to believe the s&p performance, the wealth effect as well as lower unemployment at the high end as much as 400 basis points is driving a healthier high end consumer at large. names we like are interesting costco and tjx. they don't screen as luxury names but you'll find a lot of
expensive cars in the parking lot. the other name i would cite is nordstrom and that's a real premium offering. it has a great online piece. it actually has nordstrom wrack and full line but that's a higher end department store we like as well. >> let's talk about the general theme and round things off again. the fact that we have seen low oil prices that's great. but what about food prices and health care prices? that offsets a little bit? >> yeah that is a consideration. consumer confidence is moving in the right place. i just got back from a conference interacting with a lot of ceos this year last year we had weather shocks intensely premotional environment and this year they had time to prepare inventory and had inventory control. there's renewed optimism. this morning i'm out with a note talking about a recharged view of the consumer.
the sentiment is on the positive side which should bode well for first half comparisons. we're watching and hesitant to tell you to buy all of retail. we have specific recommendations and i like the catalyst that target in particular as an idea given a new ceo and given opportunities to improve upon the expect more part of expert more pay less focus on kids and baby as well. >> oliver thank you for joining us today. much appreciated. >> thank you. >> oliver chen. i'm going to bring you more flashes from the ecb coming today. they're coming from an ecb member and the central bank governor saying that the ecb welcomes the european court of justice opinion that we had this morning. he said he was confident that the ecb was acting within it's laws saying it would always comply with eu law and repeat the things we heard earlier today. omts are ready and available and
that when asked directly whether the opinion has implications for qe and he says the court opinion is limited just to omt. that's an important distinction to make today. of course markets have moved positively following the decision we got on omt from the european court of justice and making prospects for quantitative easing more likely but the decision doesn't relate directly to quantitative easing. >> the european markets are now trading lower so we saw them move to the upside initially after the top judges in europe made those statements that bond buying is legal and necessary but since then we have been losing steam here. the real trade that investors have been watching is the euro dollar which is trading at levels not seen since it was launched in 1999. >> the stock 600 is down .4% on the day in and around session highs recovering from losses. he lan elan musk weighs in. hear what he has to say about the future of electric cars after the break. she thought she'd feel better after
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live pictures of the presidential palace in rome where the president napolitano has officially re-signed. a little pomp and ceremony outside of the presidential palace. now moving on elan musk is in motown. made an appearance in detroit since the first time since 2013 to promote the development of electric vehicles. let's get to landon with the full story. >> elan musk spoke to reporters at the annual auto news world congress in detroit on tuesday. global sales are estimated to reach 33 to 35,000 last year and the company should be able to produce a few million cars a year by 2025 saying there's an urgent need for electric vehicles. >> making electric cars and bringing them to the mass market
is an important thing. we're still going to do it. >> there's some challenges for tesla. sales in china fell significantly during the fourth quarter but wouldn't say by how much. he says it's a short-term issue blaming it on misconceptions about the difficulty of charging electric charges. he doesn't think lower gas prices will have an impact on the demand or that the newest car the chevy bolt will be a major competition. >> it's the competitors of all calls not simply cars that are electric and there's 100 million new cars and trucks made every year. so what does it matter if someone makes a few hundred thousand additional electric cars it's not going to effect us really. >> tesla's long delay model will be launched this summer and the smaller model three is on track for 2017. the model x is critical to the company's goal of reaching annual sales of 500,000 vehicles and tesla should turn a profit in 2020 when the model 3 is in
full production. as for his own future at the company he plans to stay on forever but he could also step down as ceo when the $35,000 model three is launched in two years. >> i have committed to be the ceo through mass production of that car. many years ago i said i'll accomplish that and then i'll reevaluate whether it makes sense for me to be the ceo or have somebody else be the ceo and just spend time on product developments and engineering which is what i like to do. >> musk says tesla plans to build factories in europe and china and is considering a second u.s. plant closer to the east coast. shares fell 6% in after hours and today in europe they're down more than 5%. back over to you. >> landon thank you very much. >> before we head to break, here's your headlines. the euro falls sharply after the european court gives the green
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let's have a quick look at european markets. it's down .4%. it did open and start the day down 1.6% and ftse still up because of its high energy exposure. why have we recovered because of the ruling we heard from the ecj relating to omt transactions giving people at the margin confidence that quantitative easing is coming. that's also moved the euro
dollar. it did weaken quite significantly. it's come a little bit off session lows but we're now 11753 down .15% for the day. perhaps a psychological level for some people. >> let's take a look at the move in commodities. that of course has been what markets have been moving on over the past couple of days. we're looking at crude down just about .4% in today's trade. we're not seeing any gold buying in today's trade. gold has been rallying over the last couple of days. trading at a 12-week high yesterday. but today trading down just a fraction on the day. copper is the big mover down 5% in today's session. the world bank cutting it's global growth forecast. analysts saying that's one of the reasons we're seeing a big
move to the down side in copper. but let's get back to u.s. futures. they're pointing to a lower open. the dow indicating a lower open by 48 points. the nasdaq down in premarket trade. remember the dow had it's biggest reversal since 2009 in yesterday's trade. the dow closing in the red after being up as much as 1.6%. earnings could be a big focal point for investors. u.s. earning season kicking off with results from a pair of big banks. jp morgan reporting 4th quarter numbers at 7:00 a.m. eastern. forecast to earn $1.41 on revenue and inves tors will be listening for comments on expenses and how much more jp morgan will have to pay to resolve on going government probes. wells fargo also in focus reporting 4th quarter results at 8:00 a.m. eastern. forecasted to earn $1 to a
share. jp morgan and wells fargo, up .3% and wells fargo down about .3%. >> let's talk about banks earnings a little more. banking analyst at rbc capital markets. let's kick off with jp morgan. we'll be look for trading revenue, expenses and on going litigation issues. which are you going to be focussing on the most today? >> caller: i think you have put your thumb on it. it's about the trading revenue. the capital markets business for jp morgan represents 25 to 28% of total revenues. the company has indicated that trading revenues particularly the fixed income trading revenues are going to be down anywhere from 15 to 18% on a year over year basis. if they're worse than that the stock will trade lower.
on the other hand if they're not as bad the stocks should trade higher. >> aside from the volatility we've seen in the last couple of months maybe giving it a short-term boost, places within the industry is that on a structural decline? >> we think it is. you might remember with the advent of the rule it makes it more difficult for these companies to be trading securities because there's no pro trading permitted and what sometimes can be interpreted as facilitating customer order flow might be viewed by the regulators so the banks are being careful which is effecting this business. >> let's talk about trading revenue drive. are you forecasting this number to come in higher than expected given the recent volatility we have been seeing in the markets? >> no we're worse than expected. we're below the consensus market. we're at about 2.6 billion on the equity trading revenue.
we're just under 900 million and these are down when we saw the combined number of about $4 billion of those two lines of business. >> banks are definitely not out of the woods when it comes to legal issues. citi seeing a $3.5 billion charge. jp morgan among others also still due to pay these huge settlements. how much will that weigh on profitability? >> as we look at those issues one time in nature we anticipate this is the final year for these charges for these companies for the problems that they ran into in 2007 and 8. by the end of this year for all the big banks including jp morgan and city these big issues will be behind them because they will have settled and paid the penalties. >> let's talk about wells fargo as well. for them we would be more focused on the consumer side of things, won't we? >> that's correct. as you pointed out wells fargo, you can look at it as one of the largest regional banks in the united states.
they do not have the capital markets business such as a city group or jp morgan chase so what we'll be focused on for wells is the loan growth and margin. do they come in expectations or better than expectations. >> thank you very much for joining us today. much appreciated. manage director and banking analyst at rbc capital markets. >> we'll leave you with live pictures of the president palace in rome where the italian president napalitano has just re-signed. >> a little bit of pomp and ceremony. gold armor across the guards outside of the presidential palace. that's all we have time for today on worldwide exchange. thank you for joining us. i'm wilfred frost. >> next up is squawk box.
good morning. volatility is back with a vengence this year. the dow swinging 2500 points during the first 8 trading sessions of the year. yesterday was crazy. up 280 i think and then down 100. >> swing of over 400 points. >> crazy. at this hour pointing to a lower open. a lot of this has to do with watching oil swing around and whether that's good or bad for the economy. we're still trying to figure that out. tesla investors slam on the breaks. sales in china were weak and warn that the auto maker may not
be profitable for another five years and alibaba wants to take over the retail world. reports say the company may seal a deal to link two of the fastest growing e-commerce markets, india and china. it's wednesday, january 14th 2015 and squawk box begins right now. >> live from new york where business never sleeps, this is "squawk box." >> good morning everybody. i'm becky quick. we do have some breaking news coming in right now. yemen's top al qaeda leaders claiming responsible for last week's charlie hebdo massacre. in a video this morning his organization planned and financed the attack. this is a story we'll be monitoring throughout the morning. >> we have three big business stories we're watching this morning.